Tax debts to appear on credit rating:
In the Mid-year Economic Financial Outlook for 2016, the government announced intentions to increase the disclosure capabilities for the Australian Taxation Office. The increase in information exchange will be from the ATO to credit reporting bureaus of the tax debts of businesses who are not effectively engaged in managing the outstanding debts.
As a result, from 1 July 2017, a tax debt that is greater than $10,000 and more than 90 days overdue may appear on a business’ credit rating.
The ATO has advised in separate correspondence that it will notify a taxpayer in writing when it intends to disclose the debt to credit reporting bureaus. In these instances, the business will have opportunities to ensure it does not appear against their credit record.
Risk mitigation steps
For businesses with an outstanding tax debt
To avoid current or future tax debts being reported to a client’s credit rating, they can pay the outstanding debt before the due date or enter into a payment arrangement. Under a payment arrangement, the client would need to agree to:
- lodge all outstanding income tax returns and activity statements before commencing the payment arrangement
- make consistent payments towards the debt over a specified and agreed timeframe, including general interest charge, and
- continue to lodge and pay all future debts on time and in full.
Failure to complete all these points may cause the debt to be referred to the credit reporting bureaus, which could reduce borrowing capacity in the future.
For businesses with large debtors and/or reliance on a particular customer
This new reporting requirement can enhance a business’ ability to have greater control over who they extend credit terms to. Cloud-based accounting and third party web services have credit check facilities so users can see if a particular customer should be extended credit.
These types of services are also invaluable for businesses who have a heavy reliance on one customer for a large contract. It may be worthwhile for clients to rethink this strategy when their major customer has a bad credit rating or large secured creditors.
At present, no legislation relating to this announcement has been presented in parliament. Once presented, any other parts of this new rule will be uncovered and reported on.